Monday, September 12, 2005

Did Prop. 64 resuscitate "damages" as a UCL remedy?

Reader Jeffery L. Fazio posted this thoughtful analysis as a comment to my August 26th post. I'm re-posting it here in full because I think it is worthy of serious discussion:

I’ve been doing some thinking about one of the anomalies created by Proposition 64: Its requirement that plaintiffs demonstrate they have suffered damages (i.e., a loss of money or property) before they’re permitted to bring a UCL action, even though they’re not allowed to actually recover those damages if they prove their claim.

The asymmetry — not to mention the inherent unfairness — of that result has led me to reexamine the underpinnings of the rule that prohibits courts from awarding damages under the UCL, and although I’ve yet to complete that task, it seems that the prohibition against the award of damages in a UCL action needs to be reconsidered.

Before the California Supreme Court addressed the issue in Bank of the West v. Superior Court, damages were recognized as one of the remedies available to plaintiffs in UCL cases. That was so because the ability to award damages was deemed an essential part of the courts’ equitable powers to do justice by whatever means were necessary.

Justice Bird made that observation in her concurring and dissenting opinion in Committee on Children’s Television, in which she cited to a number of cases in which California appellate courts had affirmed the propriety of damage award in statutory unfair competition cases that were brought under Civil Code section 3369 (which was later recodified at Business & Professions Code § 17200, et seq.). More specifically, Justice Bird made the following observation:

In short, Justice Bird dissented from the majority in Children’s TV to the extent that the majority had side-stepped the damages issue, and because she believed that the Court of Appeal got it right in United Farm Workers v. Superior Court by ruling that damages were available under the UCL, which conflicted with the Supreme Courts’ prior ruling — without any analysis of the issue — that damages were not available under the False Advertising Law (a companion to the UCL) several years earlier in Chern v. Bank of America.

In the wake of Chern, the question about whether damages were available under the UCL had divided the California Courts of Appeal. One District had ruled (in the United Farm Workers case) that damages are available as one of the many remedies courts of equity have to right a wrong. And another District had ruled (in the Dean Witter case) that damages are not available because their imposition would impede the Legislative objective of administrative speed and efficiency built into the private AG standing provisions of the UCL.

In other words, the Dean Witter court (and a few others) rejected the United Farm Workers decision by pointing out that it conflicted with the Supreme Court’s ruling in Chern, and then added the analysis and the rationale that was missing in Chern itself: According to the Dean Witter court, damages could not be awarded in the context of a UCL action because their inclusion would overly complicate the litigation, and thereby undermine the ease and simplicity that informed the Legislature’s decision to allow representative actions to proceed on behalf of the general public without the need for class certification.

The court’s discussion of the issue is set forth below:

"At our request the parties have briefed issues concerning the availability of civil damages on the first cause of action under Abascal's unfair competition theory. Despite one case holding otherwise (United Farm Workers of America v. Superior Court (1975) 47 Cal.App.3d 334, 344) we are satisfied that the better rule denies compensatory damages as distinct from the equitable remedy of restitution. (SeeLittle Oil Co, Inc. v. Atlantic Richfield Co. (9th Cir. 1988) 852 F.2d 441, 445; Kates v. Crocker Nat. Bank (9th Cir. 1985) 776 F.2d 1396, 1398; Meta-Film Associates, Inc. v. MCA, Inc. (C.D. Cal. 1987) 586 F. Supp. 1346, 1363; Newport Components v. NEC Home Electronics (C.D.Cal. 1987) 671 F.Supp. 1525, 1550-1551; Chern v. Bank of America (1976) 15 Cal.3d 866, 875 [false advertising statutes 'do not authorize recovery of damages by private individuals'; private relief 'is limited to the filing of actions for an injunction']; Committee on Children’s Television, Inc. v. General Foods Corp., supra 35 Cal.3d at p. 215 [acknowledging butnot addressing issue].) We believe this interpretation is consistent with the legislative history of congruent 1972 amendments to the false advertising law. Both Senate and Assembly sources indicate that the Legislature was concerned to affirm the 'general equity power' of the courts, particularly the power to order restitution. (Assem.Com. on Judiciary, Analysis of Assem.Bill No. 1763 (1972 Reg.Sess.) May 1, 1972; see Sen.Com. on Judiciary, Analysis of Assem.Bill No. 1763 (1972 Reg.Sess.) undated.) The exclusion of claims for compensatory damages is also consistent with the overarching legislative concern to provide a streamlined procedure for the prevention of ongoing or threatened acts of unfair competition. To permit individual claims for compensatory damages to be pursued as part of such a procedure would tend to thwart this objective by requiring the court to deal with a variety of damage issues of a higher order of complexity."

Ultimately, the Supreme Court resolved the “tension” between the Chern and United Farm Workers in Bank of the West by adopting the reasoning of the Dean Witter court. In Bank of the West, the Supreme Court confirmed that “the Legislature deliberately traded the attributes of tort law for speed and administrative simplicity” (a statement that the court has reiterated many times since then), just as the court had found in Dean Witter. Aside from the court’s discussion of the policy implications of requiring insurers to cover damage claims for violations of the UCL (which could have the effect of letting the wrongdoer off the hook), however, the Bank of the West court offered no further explanation about why damages should not be recoverable in a UCL action.

Proposition 64 has knocked out the very underpinnings of these decisions. That is, now that Prop 64 has eliminated private AG standing to pursue speedy and simple representative actions, it seems that the issue must be reconsidered in that light: the courts’ equitable power to award damages was sacrificed to the administrative simplicity of representative, non-class actions, so the rationale that informed the prohibition against courts utilizing the entire range of their equitable powers in a UCL action — including the ability to award damages in appropriate cases — has disappeared along with the private AG standing provision that led to that prohibition in the first place.

And in light of Prop 64’s requirement that plaintiffs show they have suffered what amounts to damages (i.e., a loss of money or property), there doesn’t appear to be any valid reason to prohibit them from actually recovering the damages that form the basis of their standing to pursue a claim.
This is a very persuasive argument. Bank of the West states in no uncertain terms that tort-like damages remedies were traded away for streamlined "non-class" procedures. Now that those streamlined procedures have been eliminated, why shouldn't that trade-off be reexamined? A damages remedy is no longer procedurally inconsistent with the UCL, and the courts have always enjoyed equitable powers broad enough to afford such a remedy. Any other thoughts?